What next for local government finance?

No matter what topic is being discussed, in local government circles the conversation always comes back to funding. The context of the last 5 years of drastic budget reductions has brought this issue into much sharper focus, and with radical changes on the doorstep the next 5 years look set to follow a similar pattern for many areas. As part of our 2017 policy work, we will be digging deeper into the issues surrounding local government finance to inform those working on the frontlines, and to influence the direction of wider debate.

At the heart of the matter is the question of control – the balance of power between central and local government, the age-old debate which has never been resolved. The devolution agenda was a significant step towards shifting the balance, but many argue that without devolving new fiscal freedoms alongside the new responsibilities we won’t see the changes we hoped. Compared with international examples, the financial tools available to English local authorities are very limited – council tax and business rates are widely regarded as regressive taxes, and fees and charges can only get you so far, especially where statutory duties are concerned. We will be asking what an ideal local government funding system might look like, building on ideas and recommendations from the Layfield report, Lyons Inquiry, ICLGF and other high profile work. We will also be exploring how these models might impact upon democratic accountability and transparency, and the ability to reliably deliver core services.

Meanwhile, we will also be engaging with the more immediate issues that are affecting councils’ ability to plan for the short and medium term. With 100% Business Rate Retention legislation starting to making its way through Parliament and the 2020 transition deadline looming, there are major questions to answer about how this new system will work in practice. Although in principle this new system could offer a greater degree of fiscal freedom, areas with a low business rate intake are justifiedly concerned about how the redistribution element will work after the Revenue Support Grant is fully phased out. Additionally, councils will be shouldering the risk of financial uncertainty that comes with reimbursing business rates through lengthy appeals proceedings, whereas this was previously absorbed by central government.

In terms of uncertainties, Brexit also features high on the list. It is important for local government’s concerns not to be lost among competing voices vying for the prime minister’s attention, and in order to do this we need to be having active debate among ourselves to decide what our priorities are. Top of the list in several areas will be reassurances around the replacement of EU funding, but beyond this we will be asking how leaving the EU will change the rules of the game for local government finance. There is already discussion about how procurement regulations may be affected, and it also opens up the possibility of things like local sales taxes.

Whatever happens, councils are likely to need to grow their capacity to support the local economy. While local government makes sense of these changes and waits for clarifications and details, there are many practical steps that can be taken straight away. Exploring new ways to support local businesses, such as direct investments, crowdfunding campaigns and joined up business support, is one idea. It would also be useful to actively engage with local LEPs to better understand the strengths and weaknesses of the region’s economy, how this might impact upon council business rate income, and what can be done to improve things. Throughout the year we will be bringing you guides and case studies that might inspire you to try some of these ideas in your area.